Samsung's OEM Genes

Samsung's recent problems with the Galaxy Note 7 have left many of us observing Samsung's difficulties and wondering "how could this have happened"? Why wasn't the response better, faster? What is the future of the brand in the mobile phone industry? What is possibly next for Samsung in the mobile phone space? Some years ago, I wrote the piece below that argued that Samsung was a victim of a genetic predisposition away from coolness, responsiveness and customer-centricity, and towards reliability and efficiency. In other words, Samsung's corporate culture was at odds with its strategic dreams, a disconnect that can never result in a good outcome unless one of those two factors -- dreams or details -- are changed. I think that the argument still holds:

Genes matter, and Samsung’s genes are OEM genes.

There is nothing wrong with OEM genes, as long as you are satisfied with being an OEM supplier, and there’s certainly nothing wrong with that, either. But, it’s quite a different story if your aspirations are to be something that you’re not, like, let’s say a big-branded, cool-defining, consumer electronics company. Maybe even an e-FMCG? Maybe Apple?

In 2012, as a result of a US court decision, it cost Samsung $1,051,855,000.00 to learn that its genes are not sufficient, as is, to become Apple-like. That’s a pretty expensive test, and one which probably could have been casually discerned by most people outside of the organization for far less cost. Just this Spring, for example, we had a group of brand-marketing executives in one of the world’s leading FMCGs examine Samsung, and their conclusion was “delusion: a great OEM with the mistaken belief that it can simply choose to become a consumer-marketing company.” They were exactly spot-on right: it’s not that easy to reinvent your culture; especially if you don’t try very hard at doing it right.

Sony, in their best times, got it right; they were almost legitimately “Apple-like,” if not actually out-Appling Apple at the time. Their vision was to build a corporate culture around the aspiration of “Utilizing technologies to create unique, fun products that fulfill the dreams of customers who grew-up in digital age – endless innovation” and they then went about making granular managerial choices that increased their chances of achieving this goal, which they did for a fair amount of time. Samsung, on the other hand, has always been, first and foremost, an OEM supplier of component parts. Their long-term vision has been “To be an OEM supplier of key parts that are essential to the electronics industry” and they’ve made the granular managerial choices that guaranteed that they’d be good at this, for a fair-amount of time.

My friend and former IMD colleague, the late Jay Galbraith has argued that corporate culture [or "the way we do things around here"] is the outcome of a host of managerial choices that organizations make regarding: vision, talent, organization, processes, and measures & rewards. In Sony’s case, when they were at the peak of their game, and with Apple today, nearly every individual managerial choice was aimed directly at achieving the overall vision, and, in addition, each choice reinforced the others. This is the genetic fingerprint of great corporate cultures! And, if you think of other great organizations that you know, perhaps Pixar, Toyota, Ritz-Carlton or Dell, when it was on its great run, what you see is the same thing: an absolute focus on the vision, and reinforcement across all of the managerial choices.

If you look closely at the cultural map for Samsung above, however, which represents Galbraith’s framework applied to that organization, what you see is a firm well-positioned to excel as an OEM supplier, but nowhere near being well-positioned to become a branded consumer electronics star on the order of Apple. The family control over the organization has put constraints on the welcoming of new ideas, and the organization has historically been built around “command & control.” Efficiencies have driven processes and measures, and both were built around an explicit acceptance of competing in commodity businesses. All of these are choices — smart choices, in fact, for an OEM — but they are not choices conducive to growing the sort of design and customer-centricity that has long made Apple unique. For Samsung to attempt to make the leap into leading-edge consumer electronics, in such a short time, and without completely blowing-up its existing culture, defies belief. To move into consumer goods from being an OEM requires: different skills, different organization structure, different ways of working together, and different measures, rewards and values. It’s completely different; which is why it’s so difficult to reinvent an organization’s culture!

At least one Federal Court in California found that Samsung had “appropriated” Apple’s intellectual property. Perhaps Samsung tried to “short-cut” the evolutionary process, become something that it really was not prepared to be? One observer from the software industry characterized organizations who rely on the ideas of others as: “lazy copycats … who think cutting and pasting is an intellectual achievement, that hard work, sweat and tears don’t matter, that ideas, designs, and innovations can be stolen willy-nilly.” This obviously comes from the heart, and while the comments may not be necessarily accurate in the case of Samsung, what they do say is that you can’t short-cut corporate culture reinvention without putting yourself at risk; a big risk!

This note first appeared, in original form, on Forbes.com on August 24, 2012. This version has been very slightly updated.